Later this afternoon I will be interviewing Kunal Sinha from the Ogilvy Corporation on ITV-Asia about “China’s Creative Imperative” – his new book and, apparently, our new buzzword. A quick search through the search engines and you’ll see that creativity is a significant Cool New Thing (CNT) for China-watchers to talk about.

Like most long-term residents of China, I have long been aware of the creative potential and practice of the Chinese. I have collected art and ceramics – and I have listened to the excuses of employees and lies of contractors. This raises the main question that we’ll all be dancing around if this new buzzword turns out to be an actual ‘thing’.

Is there Good Creativity and Bad Creativity?

Westerners tend to view creativity as a hierarchy, with ‘lightening-strike’ flashes of genius occupying the top spot. We romanticize the tortured genius and the idiot-savant professor. Westerners like ground-breaking innovation and paradigm-shifting revelation. Pure research inspires awe, but it doesn’t put profits on the bottom line. One pic of a starlet’s crotch earns a fortune in ad revenue, while the Hubble Telescope’s awe-inspiring photos of unseen galaxies were given away free on the internet.

During the 1980s, Japan was at the peak of their commercial arc – and their corporate R&D departments were filing for more patent applications than their US counterparts. But Japanese innovation tended to spring from ‘applied’ as opposed to ‘pure’ research. They took existing products and made them better or cheaper or added features. While this is a potent market strategy for the guy playing catch-up, it tends to run out of road when you are the market leader.

The 800 pound gorilla in the Chinese creativity room is Bad Creativity. Like when semi-literate farm-hands figure out that melamine will pass for protein in milk. Scams, swindles, cheats, counterfeits, piracy, and anti-competitive practices are all forms of creativity. They require no less intellect, wit and genius than other forms of creativity. Chinese people have long bragged that these are just the types of creative techniques that leave outsiders at such a disadvantage in business here.

The rocket scientists on Wall Street and the swindlers in the Chinese dairies were both displaying tremendous creativity – and were quite well-rewarded for it (at least for a while). Our challenge is to make sure that we are not the ones paying the price for Bad Creativity. In a perfect world, creativity and genius are put to the service of society at large. In our world, melamine and mis-priced mortgage-backed securities are the creative solutions that pay the most.

Creativity is not always beneficial. International managers and owners here have a lot to gain from the more creative China – but we can’t be dazzled by flash. As times get tougher in the market, you’re going to start hearing more creative ideas for making bigger profits. Be very sure that you understand what you are really getting involved in.

It turns out that he’s always been really interested in China – and you’re really interested in his big, hot resume. His bank/brokerage/business has recently been laying off/going under/no longer exists , so he is ready to shake things up and try something new – like moving to China. Sounds like a perfect match! Let’s hook up and be togetha 4-eva! It’ll be totally awesome.

And if it goes badly? Well, that’ll be his problem. It’s not like you made any promises or gave him any guarantees. Or did you?

There’s a lot of misery in NY and London. Every clever senior manager in Shanghai is bouncing around the same clever idea – ‘now is the time to hire me one of them big-city western pros with lots of experience and no job at low-low pay’. After all, EVERYONE wants to come to China…

It may work out great. But first, consider 5 questions you have to ask yourself before you start what could actually be a pretty big effort.

1) Are you training your own competition (or at least his new hot sales pro)? If you are bringing a guy over and introducing him to China biz, then you’re facing the same bad math that you go through with the inexperienced Chinese: In 6 months he will be worth 150% - 500% more than you are willing to pay him. (Makes sense for 100% commission salesmen who will ramp up to full production and pay in 3-6 months. Tends to be disastrous for everyone else.

2) Are you looking for a guy who is smart enough to revitalize your operation but dumb enough to move half-way around the world for free with no guarantees? If this guy is expensive, then how do you know he’ll be worth it? If he’s relatively cheap, then why do you want him? Either he’s not the sharpest pencil in the cup or he’s got his own agenda. Setting up his own shop is a real possibility. So is going down the street. Or he may head back home when the dust settles. It’s going to be expensive to find out.

3) His cheap and your cheap are completely different. Before you promise a western salary, make sure you can deliver the goods. You may look at rmb 50k / month as lavish pay – and someday he may as well. But for now he’s looking at the US$ equivalent and can’t believe you expect him to live on less than the head of the mailroom at his old bank.

4) He knows nothing about china and is likely to be the high-maintenance cry-baby in your shop for at least a year. You are going to have to hold his hand, and maybe find him an assistant.

5) What makes you sure he’ll be able to function in China? This ain’t Wall Street – but it’s not Uncle Bob’s Cultural Adventure Rodeo, either. The last thing you want to do is finance a resume-building 6 month journey of intercultural exploration so that IBank boy can go back to Wall Street and parlay it into another $250k after the recovery starts. You need to make money off this guy. If you are looking to hire a sales or marketing person from the US, then they’re main job skill involves BS-ing for money. Make sure that you aren’t the one being sold to.

Bob walks into his boss’ office to discuss compensation. Boss turns conversation into an impromptu performance evaluation and an on-the-spot change of job description. Tensions ensue and escalate. Bob quits. Cost to keep Bob? A bump of rmb 3,000 and 2 extra days off a month. Cost to replace Bob? We’ll let you know when they finally find someone.

Some things in life require bold, spontaneous action. For everything else, there is negotiation training.

Managing smart means taking advantage of every opportunity to boost productivity and build a more efficient team. Old school management platitudes like “raises come faster to those who don’t ask for them” or “show me what you can do – then I’ll think about promoting you” make a lot more sense back home in the US then in Shanghai. Remember – you are fighting two HR trends simultaneously. On the one hand, you want to retain good people so that they can help you grow your operation. On the other hand, you need to control costs. Good managers will treat every negotiation as an opportunity to strike a balance between these two competing goals.

Five useful tactics for internal negotiation:

1) Listen
I know – this may be a radical departure from the norm for some of you out there, but this can really save you money, time and bad feelings. Just because the guy across the table is talking about money or compensation doesn’t necessarily mean he is jumping ship or demanding a 50% pay raise. It might be that – but you shouldn’t jump to conclusions. Sometimes people just want to talk, other times they want reassurance or have legitimate questions. What is his goal? Until you know, you aren’t negotiating – you’re just arguing.

2) Choose your battles
This is one of those great rules that make complete sense after it’s already too late. Over-scheduled senior managers try to take care of many outstanding issues at one time. Middle managers might introduce their request for a raise or promotion with a laundry list of organizational problems or extra work they have had to do to correct them. If you turn this into a point-by-point debate, then you should expect your conversation to be long, painful and hostile.

3) Linkages get messy
The guy asking for a raise or a promotion has come in late twice in the last quarter and completely blew what you though was going to be an easy sale back in June. Now you’re feeling clever by delaying action until you see progress in those areas. The good news is that you’ll succeed in delaying the raise. The bad news is that you have turned the process into a disciplinary hearing and not an opportunity to set goals or discuss the future. You should also not be surprised if this tack results in mutual accusations, fault-finding and retribution.

4) Watch the power imbalance
You say “honest and constructive dialogue”. He says, “arrogant bullying”. This is particularly important when managing cross-cultural negotiations – especially when an American boss is negotiating with a Chinese. Europeans can also be sensitive to this. And Canadians. Come to think of it, this warning applies to just about everyone but New Yorkers. You may see yourself as the “cool, with-it team leader”, but your team might see you as “cruel, wicked Dear Leader” – at least some of the time. Negotiations tend to be one of those times. This is a perfect opportunity it try out some of that ’sensitivity’ nonsense that you’re always hearing about.

5) Have a goal.
That goal probably shouldn’t be getting your employees to feel sorry for you for working so hard. First question – what do you want to do with the guy across the table ? Do you want to expand his role, maintain the status quo, or ease him out of the picture? Decide carefully. It’s ok to schedule another meeting – but be clear on your own goals for the meeting. Hint: thwarting his request is a pretty weak goal.

You’re a strategic thinker, and you’re always looking for innovative ways to reach out to new clients and build your base. You are looking for new ways to market - cheap and smart is your preferred style - and to control costs.

This is a great time to sit your staff down and make sure that everyone is pulling in the same direction. It’s very possible that even as you are trying to grow the business one customer at a time, your cost-cutting is driving away potential buyers in droves.

Are you converting ‘maybes’ into regular spenders or trash-talkers?

From Surplus to Shortage
Many of your marketing efforts have slowly shifted from managing a surplus of customers, clients and inquiries to dealing with a relative shortage of prospects. It may be due to your own expansion, it may be due to increased competition — or business might really be slowing. Whatever the reason, it’s possible your orientation has shifted gradually but steadily over the last year. Make sure that your organization has shifted with you. If your front line people still believe their own PR about being a premium supplier with waiting lists and lines around the block, then they may be treating your marginal customers and prospects like dirt. That makes a certain amount of sense when you are running above capacity all the time. It’s ludicrous to drive away potential business if things are slowing down.

Make it easy to spend money at your shop
I’ve said this before and I’ll say it again now - the final transaction between customer and you should be so effortless, so easy, so natural that there is no resistance at all. My company has turned down deals with 3 separate China suppliers in the last 15 days because it was so difficult to transact. In one case, the single customer service rep couldn’t answer the most basic questions about payment details. In another, a small restaurant chain that was probably very popular in 2006, drove us to another venue for a major client dinner through sheer arrogance and incompetence. These were transactions that we initiated because of the companies’ very expensive long-term branding and marketing efforts. We walked away because it was just so hard for us to give them our money.

Top Line vs. Bottom Line vs. Break Even
Don’t fuss with top line vs. bottom line growth targets. In a slowing market, you have to determine a break-even per customer spend or transaction. In other words, figure out what kind of customer is really worth saying ‘no’ to — and then say ‘WELCOME’ to everyone else. If you are a restaurant that is 60% full for lunch 5 days a week, then make sure you are not treating the set-meal-set like cattle. These are the guys who will keep your doors open when things get worse. If you are running below capacity and someone wants to give you a profitable deal — even if it is only a small profit — then you should be bending over backwards to get them in the door and spending.

Catalogs and Price lists
How easy is it to get a price list or catalog? I did a test last week — I tracked the response to phone-in inquiries for product or price information. My assistant (native Mandarin) and I tracked our requests for media kits, rate cards, professional services and even IT equipment. The lower the value of our inquiry the easier it seemed to be to get any useful data. China media companies that depend on advertising revenue — who should be good at this by now — are still treating rate cards like state secrets. Remember guys — the whole point of advertising and marketing is to get people to initiate a relationship.

Closing
Everyone in your company — from the sales pros to the accounts receivable assistant — should be familiar with the concept of ‘closing a deal’. Structural impediments and obstacles should diminish as the deal progresses — not increase. It’s not about agreeing on a price — it’s about delivering value. Your clients shouldn’t feel that they are the ones driving each transaction.

Believe it or not, the latest crazy fad in China compensation trends (ie: your payroll spend doubling in the next 18 months) may actually have a silver lining. Sure, there’s a good chance you’ll be dead or teaching English in Wuhan by the time it gets here — but let’s just chuck a few ideas around for the heck of it.

Process efficiency and Productivity just stopped being punch-lines in China.

A Level, Lower Playing Field

As real costs in China rise across the board we’re starting to see local firms that used to compete as the low-cost producer or service provider are becoming less competitive. They’re still cheapers, but they are much more sensitive to price increases because it’s their only advantage. International businesses in China, who have already either focused on the lucrative B2B and high-income expat markets, may be feeling pressure, but at least they can raise prices without losing their client base.

For most businesses, the only way to deal with higher prices in the long term is to get more productive and efficient. Many local Chinese mid-sized companies that grew very quickly on surging consumer demand and guanxi financing are now facing a slowdown for the first time. When business slows, you need to understand how to cut costs without gutting the company’s brand, reputation and client list. Most Chinese managers out there have never had to deal with a real down market.

Efficiency and productivity aren’t just about cutting costs. We’ve done that. In a slow-down (or yeah, I’ll say it — a recession) it’s about raising value. It’s about minimizing your own price hikes while finding new ways to add value and improve your efficiency. You already know the bad news — overseas economies are getting hit hard and it’s just a matter of time before China feels it. The good news is that your local competition will be thinned out by the coming market chill. More good news is that you are familiar with the boom-bust cycle and your competitors are not. Make sure you take advantage while you can.

September is the time when those wayfaring expats start to drift back into the office and turn thoughts away from beaches and towards business. Americans never quite got used to European-style holiday schedules and it always seemed like just another bizarre cultural anomaly that had to be worked around. But now with the 3rd quarter already winding down, it’s time to start thinking about finishing 08 with a bang and preparing for whatever lies ahead.

Next year could be a lot different for a lot of us. Now we’re coming into a busy season – but for some China businesses it may be the last one. The ground is shifting beneath us, and we can feel the mood of business grow more guarded and gloomy.

Here are a few big-picture ideas for making sure you survive the tough times.

Evening the odds.

Negotiate different. In the past, it was about maximizing short-term profit. Now your goal system may have shifted to sustainability. Senior managers tend to manage budgets in tight little bursts of, “how much, how can we get it cheaper”. That’s ok when new suppliers are popping up like mushrooms and your client base is growing steadily. Now you might want to consider the all-in, life-of-contract price. You probably won’t want to replace cheap equipment or re-hire cheap consultants a year from now.

Tighten your market focus. Reassess expansion plans. Growing your market or adding branches may make huge sense or it may make none. Once thing is certain – the market environment has probably changed a lot since you made your initial plans. Re-run all the numbers with a lower-sales, higher-cost scenario. 2009 will be a lousy year for spectacular disasters in China.

Organize your staff. It’s getting harder to fire, so consider moving people around instead of hiring outsiders. As for the executive suite, the key phrase is Key Man Policy. Write it. Learn it. Live it. As your market and operation mature you’ll need a deeper bench. So does the guy down the street. Make you can hold on to the people you develop.

Outsource sensibly. That means using key outsourcers and consultants on a regular basis. Look for ways to involve them in the planning and feedback portion of projects. Beware of lowest-cost options that only do 70% of a job – you have to figure out a way of doing (and paying for) the remaining 30%.

Check your existing business plan. Not just the table of contents and headings – you have to drill down and re-examine your basic assumptions. This is particularly true for HR and manpower planning. China (and Shanghai in particular) used to be about low -cost labor. Now it is not. Make sure your planning reflects your new market environment.